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CPA > FAR6 > Flashcards

FAR6 Flashcards

1
Q

Funded Status (reported in Statement of Financial Position)

A

FV of plan assets - PBO = funded status

Pension Plan Asset (noncurrent)
Overfunded = FV of plan assets > PBO

Pension Plan Liability (current, noncurrent, both)
Underfunded = PBO > FV of plan assets

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2
Q

Defined Contribution Plan

A

Specifies the periodic amount of contributions to the plan (charge expenses, and credit cash)

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3
Q

Defined Benefit Plan

A

Defines the benefits to be paid to employees at retirement (computed using actuarial assumptions of future benefit payments)

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4
Q

Accumulated Benefit Obligation (ABO)

A

Based on current and past compensation levels (only current salaries)

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5
Q

Projected Benefit Obligations (PBO)

A

The actuarial present value of all benefits attributed by the plan’s benefit formula to employee service rendered prior to that date. PBO only uses assumptions as to future compensation levels (guess future salary)

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6
Q

Calculating PBO

A

B: Beginning PBO

A: Service cost, Interest cost, Prior service cost from current period plan amendments, Actuarial losses incurred in the current period

S: Actuarial gains incurred in the current period, Benefits paid to retirees

E: Ending PBO

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7
Q

Calculating Actual return on plan assets

A

B: Beginning FV of plan assets

A: Contributions,
Actual return on plan assets (squeeze)

S: Benefits paid to retirees

E: Ending FV of plan assets

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8
Q

Income Statement (expense) formula

A 
S   current Service cost
I     Interest cost
(R)  (Return on plan assets)
A   Amortization of prior service cost
(G) (Gains) and Losses
E    amortization of Existing net obligations (+) OR net assets (-)
= Net periodic pension cost
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9
Q

Net Periodic Pension Costs JE

A

DR: Net periodic pension costs
CR: Pension benefit liability
CR: Other comprehensive income

when pay: Pension benefit liability
Cash

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10
Q

Interest Costs

A

Beginning of period PBO x Discount rate

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11
Q

(Expected return on plan assets)

A

Beginning FV of plan assets x expected rate of return on plan assets
= (expected return on plan assets)

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12
Q

Amortization of unrecognized prior service costs

A

Beginning unrecognized prior service cost / Average remaining service life
= Amortization of prior service cost
(unamortized is in AOCI)

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13
Q

(Gains) and Losses(+)

A

The difference between the expected and actual return on plan assets when the expected return on the plan assets is used AND changes in actuarial assumptions
(unamortized is in AOCI)

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14
Q

Accounting for (Gains) and Losses

A

Recognize G/L immediately in I/S OR Recognize G/L in OCI and amortize over time using the corridor approach

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15
Q

Corridor Approach: Accounting for (Gains) and Losses

A

GREATER of:
Market related value of plan assets = assets OR PBO = liabilities multiplied by 10%

Then divided by Average remaining service life

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16
Q

amortization of Existing net obligations/net assets at implementation

A 
PBO - FV of plan assets
= Initial unfunded obligation / 15 years OR average employee job life (GREATER OF)
= Minimum amortization
(unamortized is in AOCI)
(net obligations +, net assets -)
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17
Q

B/S Accounting Pension Plan Contributions

A

DR: Pension benefit asset/liability
CR: Cash
to fund the pension

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18
Q

Beginning and ending funded status (FV plan assets - PBO) of a defined benefit plan

A 
Beginning funded status
\+ contributions
- service cost
- interest cost
\+ expected return on plan assets
- prior service cost
\+ net gains
- net losses
= Ending funded status
19
Q

Prior Service Cost and Pension Losses

A 
DR: OCI (goes to AOCI)
CR:    Pension benefit asset/liability
DR: Deferred tax asset
CR:    Deferred tax benefit - OCI
(pensions gains are the opposite)
20
Q

Amortization of Pension Expense

A 
DR: Net periodic pension cost
CR:    OCI (take it out of AOCI)
DR: Deferred tax benefit - OCI
CR:    Deferred tax benefit - I/S
(following year JE's are opposite)
21
Q

U.S. GAAP Pension Plan Disclosures

A

More is better (disclose everything)

DO NOT DISCLOSE: repeat info and predict/project good items

22
Q

Defined Benefit Pension Plan F/S

A

F/S presented by the pension plan itself

Plan Investments reported at FV

23
Q

Accumulated Postretirement Benefit Obligation (APBO)

A

Is the PV of future benefits that have vested as the measurement date (is discounted using the assumed discount rate)

24
Q

Attribution period

A

APBO is accrued during the period the employee works (from hire date to full eligibility date)

25
Q

Amortization or Expense of the Transition Obligation

A

Either immediately expense or amortize over average remaining service period or 20 years (GREATER of)

26
Q

Funded Status - B/S

A

FV of plan asset - APBO = funded status

Noncurrent: Postretirement benefit plan asset
Overfunded (FV of plan assets > APBO)

Current, noncurrent, both: Liability
Underfunded (APBO > FV of plan assets)

27
Q

Liability Recognition

A

The employer’s obligation is attributable to services already rendered
The obligation relates to rights that vest/accumulate
Payment of the compensation is probable
The amount can be reasonably estimated

28
Q

Vacation/Sick Pay Benefits

A

Accrue for vesting

If non-vesting accumulating rights then DO NOT accrue

29
Q

Permanent Differences

A

Affects “current”, not “deferred”

30
Q

Temporary Differences

A

Affects “current” and “deferred”

31
Q

Deferred Tax Liabilities

A

Future tax accounting income > future financial accounting income
(tax deductible first/f.s. expense later)
(f.s. income first/taxable income later)

32
Q

Deferred Tax Asset

A

Future financial accounting income > future tax accounting income (gift certificate)

33
Q

JE to record taxes

A 
DR: Income tax expense - current (YR 1)
DR: Income tax expense - deferred
CR:     Deferred tax liability
CR:     Income tax payable
DR: Deferred tax liability (YR 2)
CR:     Income tax benefit - deferred
34
Q

Valuation method

A 
(50%) that part of all the deferred tax asset will not be realized, a valuation allowance is recognized
DR: Deferred tax asset (YR 1)
DR: Income tax expense - current
CR:     Income tax payable
CR:     Income tax benefit - deferred
DR: Income tax expense - deferred (YR 2)
CR:     Deferred tax asset
35
Q

Uncertain tax positions

A

Aggressive tax positions
Step 1 - the evaluation is based on the expected outcome in the court of last resort
Step 2 - the evaluation is based on the expected outcome in a settlement with the taxing authority

36
Q

Enacted tax rate

A

Measurement of deferred taxes based on the applicable tax rate (for temp. differences)

37
Q

Changes in Tax Laws/Rates

A

I - income from continued operations (change in estimate - prospectively)

38
Q

Net temporary adjustment

A

Deferred taxes: end balance - current balance

= requirement adjustment

39
Q

B/S presentation Income taxes

A

“based upon what gave birth to it”
Rule 1: Deferred tax items should be classified based on the classification of the related assets/liability for financial reporting
Rule 2: exceptions (not related to asset or liability should be classified based on expected reversal date of temp. difference)

40
Q

B/S deferred Net Across

A

All deferred tax assets and liabilities classified as “current” netted
All deferred tax assets and liabilities classified as “noncurrent” netted

41
Q

Operating Loss Carrybacks

A

100% collectible (no valuation allowance)

Used to reduce taxes due or receive a refund for a prior period

42
Q

Operating Loss Carryforwards

A

Valuation allowance may be necessary (required) - 2 years: recognized to the extent that the tax benefit is more likely not realized

43
Q

Investee’s undistributed earnings

A

Income tax return = dividend income
GAAP F/S = % of sub’s income
= temp. difference

Ownership 0-19% - 70% exclusion (perm. diff.)
Ownership 20-80% - 80% exclusion
Ownership over 80% - 100% exclusion

CPA (11 decks)

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